Small-Cap Institute’s Amanda Gerut interviews renowned small-cap CEO, Billy Prim. Mr. Prim founded Blue Rhino, which was ultimately acquired for $340m. Subsequently, Mr. Prim founded Primo Water (Nasdaq: PRMW), where he now chairs the board. Mr. Prim provides invaluable insights for other small-cap CEOs about how he was able to grow and sell Blue Rhino, and then use what he learned to found another company with a market cap that today exceeds a half billion dollars.

Billy Prim Q&A Transcript[Note: This transcript has been edited for clarity.]

Q: So, I want to start with Blue Rhino. Where did the idea come from? How did you get going?

A: My background story is pretty unique. I lost my father and grandfather when I was in college as a freshman and ended up having to come home to take care of the family at an early age. I was fortunate enough to have scored high enough on the GMAT to get into Wake Forest Business School without an undergraduate degree. Once I learned how to read a balance sheet, I knew that I wanted to be in business. My first business was a petroleum distribution business. And while I was running that petroleum distribution business – we distributed petroleum, propane and home heating oil – I was on a trip to Europe and I noticed that people exchanged propane cylinders (over there they’re butane) but they exchanged the cylinders instead of refilling them the way we did here in the U.S. I came back to the U.S. and decided that was something I wanted to try in the U.S. And while I was testing it in some of my own convenience stores, the local Walmart manager came by and said, “Billy, we have a problem. Walmart sells hundreds of gas grills every week but has nowhere to send our customers to buy gas. Would you think about doing this for Walmart?” Well, that’s when the light went off and we started with a business plan and the rest is history.

Q: Getting into Wake Forest without an undergraduate degree is really, really impressive. How did the petroleum distribution business come about? Was that your father or grandfather’s business? Or was that something you started on your own?

A: It’s something I started on my own. Actually, that’s what I learned in business school – the power of financing. The first three businesses I purchased were all through owner financing. It was a very humble beginning that turned out well.

Q: So the light went on with Blue Rhino. Can you talk about starting that business? Did you intentionally set out to build the company you built? A: You know I did. After that meeting with the Walmart manager, I met with Walmart and they gave me a list of things that I would have to do to secure a test with them. I’d already scheduled a photographic safari in South Africa that my wife and I were going on, and I told her that I was going to spend my trip writing a business plan for this soon-to-be propane company. And, one of the things that I felt was important was that I didn’t want to be trapped in a commodity gasoline business again. And I had to brand this product. So while we were taking pictures of the rhino, I decided that he looked like a tank. It looked like a tough, sturdy character that if we put the blue flame on his nose that possibly he could do for us what the Pink Panther did for Owens Corning. And, we wrote the business plan, came back and it turned out that Lowe’s Home Improvement turned out to be our first customer. But eventually Lowe’s, Home Depot, Walmart, all of the big guys came on board. We spent our time trying to figure out how to raise enough capital to take care of all the growth that we had.

Q. Was your wife OK with you spending this trip working on the business plan?

A: Yes. She’s used to it. Yes.

Q: How did that work out that Lowe’s was the first client and not Walmart?

A: As is typical with a lot of these large retailers – and you have to remember this is in the early ‘90s when Walmart and Lowe’s were much smaller. Walmart said that they liked the product; they liked that I had taken care of the issues like insurance and other things that they had asked me to look at. But they moved a lot slower. Lowe’s, on the other hand, was just starting their big box format. They said, “We’d love to test this. It sounds like a great idea to go with our gas grills, which are growing very fast.” We put it in at Lowe’s and in one week to the day, Home Depot called us. They said, “Hey, we see what you’re doing at Lowe’s, would you come down and make a pitch to us?” So, Lowe’s and Home Depot were our first two customers. After that, Walmart came on board.

Q: How big was the company in these early days? Was it just you going and doing these pitches?

A: It was a three-or four-person company. It was actually a little side project to American Oil and Gas, our petroleum distribution business. But I quickly saw the potential and I sold the petroleum distribution business and turned all my energy to Blue Rhino.

Q: How quickly were you able to scale at that point? You’re in Lowe’s, one week later Home Depot says come talk to us, and then you’re in Walmart. How quickly did you see the amount that you were selling increase?

A: Well, I don’t have the numbers in front of me, but we grew very rapidly. You’ve got to remember, this is the time that you had a lot of factors that were going for us. No. 1, people were switching from charcoal grills to gas grills. That was a big rise. The other thing that was happening was Lowe’s, Home Depot and Walmart – all three – were in huge growth initiatives and building these stores and opening them every week. So, more locations, more customers – a lot of it aligned and came together and so we quickly over a seven-or eight-year period built a $300 million business.

Q: Ok so I do want to spend some time here. This is the thing companies struggle with – getting that liftoff with regards to scaling revenue. Can you talk a little bit about advice you would give to leaders of small-cap companies who are stuck but are aiming higher?

A: Well, a couple of things is that a lot of it is the product and the industry that they’re choosing to enter. If you’re entering a business where you’ve got to steal market share from somebody else to be successful, that’s going to be a much slower growth initiative because you’ve either got to do it through innovation or you’ve got to do it through lower prices or something else. However, if you can enter into a growth industry where more customers are coming into that product… And the perfect example is water, right now. People are leaving carbonated soft drinks and sugary beverages everywhere for all forms of water. So, I’ve got huge demand so it’s much easier to grow that business. That’s what investors look for. So if you find an industry that has those growth dynamics, No. 1, your ability to scale your customer base is larger, and your ability to attract capital is going to be much larger.

Q: That’s really interesting. When you realized that Blue Rhino was going to take off, did you know it was going to be as big as it got? Or did you have an indication in those seven or eight years?

A: I really did. And one of my mottos is: I tell people to dream big. And I will tell you, there were several ups and downs in the first five to seven years. However, when you look five to seven years out from when we originally started, those plans were really very close to what we thought that we could capture of that industry. I think you have to paint a vision and attract people that want to grow something of size and significance. Not many investors or even not many people want to follow a leader who has a small vision. You’ve got to have something that people are going to be attracted to.

Q: Can you talk about some of those downs in the first five years and how you worked through them?

A: I can give you a couple of stories. One of the early issues was we had a board that was made up of some prominent individuals and one of the individuals felt that we should focus on the independent gas stations and grocery stores instead of focusing on the Walmarts, Home Depots and Lowes of the world. He felt like we would have less customer concentration and a lot more ability to manipulate or improve pricing, whereas the big guys had all the clout and are difficult to deal with. But, that was not my model. It wasn’t where I started going and it was a very difficult challenge internally to convince everybody that we had a plan. These big three (Home Depot, Lowe’s and Walmart) were growing very rapidly. We could ride their coattails in growth, then be able to handle all the convenience stores around the country. And in fact, that’s what we eventually did. But it was difficult in the early days because you have some investors who have different philosophies. And I eventually had to find new money to buy out those investors. That was an early conflict.

One of the second things happened… not too long after we went public. Propane gas is a byproduct of refining gasoline. And in the summertime when most of our usage (took place), there really isn’t a lot of use for propane (beyond gas grills) so it was very cheap. And the price stayed very steady. But in 2000 the market for natural gas went up dramatically, and a lot of refineries decided that they were going to run their plants on propane, which caused the price of propane to spike to about triple what it was normally. We went back to our large customers to say, “Hey, here is what’s happened. We need to increase prices to go along with this.” And we had a couple of customers – large customers – who we had signed pricing contracts with that ran through the end of the year. And, they would not let us move pricing until the end of the year (when the contracts were up). So we had to go through an entire summer in which we were going to lose about one dollar for every tank that we sold. Our stock went from $24 to $2. It was a horrible time. People didn’t know if we would have enough money to get through the summer. We had to make a lot of sacrifices internally, but we knew that if we could make it to the end of the year, our model was intact, our customer base was intact and things would change. And that’s exactly what happened. We made it to the end of the year, and for the next three years running we were in the top 10 largest gainers on Nasdaq in a row. So, we made it all back and more but it was a very stressful time to get through the summer of 2000.

Q: Did you have doubts about the company making it through that summer?

A: A leader has to have confidence and if not you’re going to lose your people. So we had a plan, we had a path that we were going to follow. We did have to raise some capital, which was somewhat dilutive. However, we cut that to a minimum and we saw our way through. Our management team stuck together, we made it through and we all reaped the rewards in the end.

Q: That’s great. Can you talk about your board? You mentioned the board member who wanted you to focus on independent gas stations and grocery stores. Can you talk about putting a board together and building a management team and your role as a CEO and how that went for you. Is that something that came naturally or something that you took on by necessity?

A: This is one of the most important issues for any CEO. And that is surrounding yourself with quality people. Quality people that have the same value system you do. And I say it is really important for young companies to attract people internally who are capable of managing a business much larger than it is today so that you’re thinking ahead. Because when you’re a growth company, you’ve got to have people who can manage where the company is going to be in three to five years, and not where the company is today. Same thing with board members. You need board members who have the experience and the knowledge to help you get through some of the pitfalls, because they’re going to come throughout any growth company’s evolution.

Q: Can you talk about some of these hires that you made? When I looked at the Primo Water board, I saw a lot of Blue Rhino people. It looks like you have a solid core group. But then it was also interesting that (new Primo Water CEO) Matt Sheehan came in from the outside. Can you talk about some of those Blue Rhino hires you made and whether that was a key piece in making hires for Primo Water – finding people who could manage the business down the road?

A: You’re talking about my Primo team and the Primo board and what I would say is that there’s some history there. I knew those people and their skills and what they could bring to the team which was really important to bring that knowledge base of what an exchange process is. There were also a lot of the customer relationships and… bringing that talent to the company really allowed us to move much faster. Everybody knew each other. But I also think it’s very important to continue to bring in outside people with new ideas and new processes so that you get that blend, and so that you never get stale and start saying, “This is the way we did it at Blue Rhino. We have to do it this way.” We want to continually improve. It’s the same thing with our board. I had a couple of board members who were on my board at Primo who I knew what they brought to the party. But then I made sure that I added to that people like Susan Cates, who comes from the technology world, who has seen all these new ideas and ways of working that she can introduce us to. People like Jack Kilgore, who is a 30-year food veteran who knows retailers and how they think about online sales versus in-store sales, where they’re going and what the trends are. So I think it’s important to have a blend of that and it’s worked well for us.

Q: That’s really interesting. Can you talk about being a CEO at a really quickly growing company like Blue Rhino and how that role was for you? How you took that on?

A: Well, I always knew that I wanted to be a CEO and run my own business. That’s something that I knew from Day One. I also knew that I wanted to do an IPO when I started Blue Rhino. That was just the hallmark of any entrepreneur and this was something we started Day One in thinking about from the way we conducted our audits, our financials and the way we built the company. So I started that from Day One. As far as being a CEO and the way I think about it is that I knew that I had to be who I am. Other leaders, I try to tell them that I think being authentic is one of the most important qualities that investors and employees look at when they’re wanting to follow someone. And that’s really hard. It was hard for me and that’s hard and for everyone. When you’re a young leader and you don’t have the experience, you really feel like you need to be somebody else. But being authentic is a really important quality I try to follow.

Q: I think that’s sort of the thing that you know we want to focus on at SCI is for you know CEOs who maybe feel lonely in the job and want to project confidence to the board and to investors but really have questions and no one to talk to. Where do you get that confidence to be authentic, to be who you are?

A: I surrounded myself with a lot of quality board members and a lot of people that I could bounce those ideas off. I will tell you, I didn’t start out being that way. I can give you a funny story. I had the opportunity to have lunch with George Bush, 43. We were talking about this subject and he gave me a story. He said, “Billy, you know I started out my campaign up in the Northeast and I was running against somebody in the New Hampshire primary, and I just got my butt kicked. I came home and my dad sat me down and said, ‘Son, you were up there telling everybody you were this Harvard and Yale graduate, gonna be an Ivy League guy and all this stuff. Son, do you realize you’re from Midland, Texas? You walk like it and you talk like it. People are either going to like you for being from Midland, Texas and what you are, or they’re not. But, you’ve got to be who you are.’” And I always thought about that story. It is so true. You know, you have to have confidence in who you are and what you believe in and if you’ve got great ideas, good value system, you’re going to get a lot more people to follow you with being that authentic, than trying to be somebody you’re not.

Q: That’s a great story. It comes along the way. So you knew you wanted to take this company public. When in the course of work did you say we’re going to do an IPO.

A: Oh. Day One. I felt like this had all the growth aspects, categories, everything else. So when I was putting the management team together and the funding together, that was my thought process.

Q: Did you always intend to sell? How did the sale come about?

A: No. I never intended to sell. That was the funny part. But what happened is that we grew Blue Rhino to more locations in the US than McDonald’s, Wendy’s and Burger King combined. So if you had fast food in your town you certainly had Blue Rhino. But the model, after we grew all these locations in the U.S., the model really didn’t work in other countries. I looked at Brazil, Mexico, China – all these places control the sale of propane. You have to buy it from the government and then you have to sell it at the price they tell you. So our business model really didn’t work to go outside the borders very much. And as a small-cap growth company, you have to keep growing. And so, we looked, we talked and as we were trying to decide what to do, Jim Ferrell who ran an L.P., Ferrellgas Partners, came in and made us an all-cash offer that turned out to be a great deal for everyone.

Q: Was it difficult stepping away from what you’d built? I read that you sold Blue Rhino to Ferrellgas for $343 million, so that sounds like a pretty good offer. But was it difficult stepping away from this business that you built?

A: Oh. It was very difficult to sell your baby. I mean, I knew it was the right thing for stockholders. It was the right thing for our employees. It was good, but oh, it was very difficult for me.

Q. So you sell the company, and then how did you go from the propane business to the water business. Where did that idea come from?

A: Mr. Ferrell asked me to stay on with the company and I wanted to make sure that the people were taken care of and the company prospered. So I tried that for a little while. And while I was doing that, we had gotten calls from Home Depot and Lowe’s both, asking us if we could put together a Blue Rhino-like program for five-gallon bottled water. They were selling water dispensers but had nowhere to send their people to buy water. They thought a water program like the Blue Rhino program should work. I started doing some research on the industry and saw those growth dynamics we talked about. You know, healthy living, tap water really having a lot of concerns about its quality, you know I saw this as a long trend of people switching to water, I felt like it had a lot of opportunities. I went to Mr. Ferrell and said, “Mr. Ferrell, I’ve never really worked for anybody else. I’m an entrepreneur at heart. I think I’ll be much happier building another business. I’ve got a business plan that’s non-competitive. I’d like to take four or five people from my Blue Rhino group and start this new company from scratch.” And he agreed, and the rest is history.

Q: Were you excited to start from scratch again and build something new?

A: It’s the greatest feeling in the world. It is. It is. That’s the best of times. When you’re really trying to come up with a name and a branding and in this case we were doing all these taste tests of water, what our formula was going to be and so on. It’s the greatest job in the world. I love it.

Q: Sounds good. So what is it like being a CEO the second time with Primo Water? And I know you’re executive chairman now, but doing this a second time, was there anything you did purposefully differently with Primo Water than with Blue Rhino?

A: I would say a couple of things and some of it I’ve already mentioned. Number One, I made sure I hired for where we’re going to be in three years, not for where we were today. I hired better people. I also made sure not only the people I hired, but everybody that was going to be a part of this new company had the same value system and same goals as I did. And so that included our distributors, our board, everybody that I was surrounding myself with I wanted to make sure and take my time to get the right people.

Q: Can you talk about how you gauge people, who you gauge values? Is it a gut feel? Is it résumé?

A: Well. It’s always different in different cases. You do look at people’s history and their résumé. But I also like to find people who have been through some challenges in life. Because if a person has never been through anything traumatic in their life and overcome it, you really don’t know how they’re going to handle being in a stressful situation. So a lot of times I’ll look for that. I totally believe that people need to have the same value system otherwise when tough times come, you don’t react the same way. I’m a very spiritual person. I’ve got a foundation there that keeps me grounded in any kind of situation. I look for people that have some of the same values I have.

Q. Sounds like that’s what you look for with the board as well.

A: It’s all the people you surround yourself with. It’s suppliers, it’s distributors. Life is just a lot more fun if you surround yourself with fun people who believe in the same thing you do. You know? So it makes things a lot easier and I understood that a lot better the second time than I did the first time.

Q: Can you talk about your interactions with the board? These are two companies you founded. Does the board keep you grounded? Can you talk about how you interact with them and how they help further the ideas and the company?

A: A board has a lot of responsibilities in today’s world. Governance is certainly a big part of it. But I try to make sure that everybody is well educated in what the strategy is. And then, how we’re going about executing it. And they can contribute their industry knowledge or their network of finding talent or helping any situation that may come up. I have a call scheduled with every board member monthly and we regularly discuss the industry, what’s happening in the world, you can imagine all the things that are going on in retail today. Changing marketplace, how we’re attacking that part of it. So it takes a lot of dialogue to really keep board members up to speed and therefore I get their feedback so they’re proactively calling me saying, “Hey, here’s what I saw in our business, here’s what I saw in a competitors’ business,” and contributing to the process.

Q: I like what you said before about bringing in outside points of view so it’s not Blue Rhino part 2 at Primo Water.

A: It’s very important. It’s important to continue that. I’m a big believer in that you have to have diversities, diversities of background because people look at different ideas and things in different ways and you need to get all of those opinions – it’s important.

Q: Can you talk about the company has hired a new CEO, but I read that he came in as a COO and was there for about five years. As I was reading that, I kept thinking that there must be a culture at this company. Bringing somebody in from the outside and having them become the leader – were you looking for somebody to come in and be the CEO at Primo?

A: I was looking for somebody who could become the CEO. And, one of the things that I think a CEO has to do is they need to dedicate probably between 25% and 30% of their time to finding talent. It isn’t like you wake up one day and say, “I need a new president and then go run out and find one.” You can do that based on background or resume or have a headhunter find it. But the odds they’re going to fit the culture and the strategy you want to see the company take is a low percentage. On the other hand, you can continually look for those type people and when you find one, then you bring them in and you have time to make sure they’re the right person. I’m very involved in Young Presidents Organization. I had a fellow IPOer who introduced me to Matt Sheehan. I met with Matt and he was passionate about water. We had a lot of the same goals. We decided to get together and we brought him on board as a consultant, he then moved to COO and then to president. And then, as time went on, he became CEO, which has been just a great thing. One of the best young leaders I know.

Q: I want to hear more about Primo. Were there challenges that you faced with Primo in terms of growing the company or did it all just come together?

A: No. There are always going to be challenges and I think that having that determination to see it through those challenges is one of the things that makes a good entrepreneur. And Primo was no different. We made mistakes with Primo in the early days. I would be the first to say that we went public too early – before we really understood the business enough to be able to properly predict where it was going. We made an acquisition of a sparkling water device that turned out to be a bad acquisition. And, those two things we struggled with in the early days. But the core business of exchange water and bulk water and refill have just been consistently growing. And as we fine-tuned it we got our legs under ourselves and we’re having a great run.

Q: What advice would you give to CEOs of growth companies regarding raising capital?

A: A couple things that I’ve mentioned. First of all, dream big and then scale it fast. I think you need to have to have a big enough idea that you’re going to get other people to follow you. Secondly, like I said, I think you can go public too early. Everybody wants to do that IPO. It’s certainly a big hallmark for any entrepreneur. We made the mistake of going too early and I would urge people to wait until you find enough consistency in your business to be able to predict your growth rates and where you’re going and how you’re going to get there. Those are a few lessons I’ve learned.

Q: I was going to ask you if there was anything, as you look back, if there was anything you would want a do-over on, and it sounds like the IPO is one. But is there anything else you would want to do differently?

A: Well, the acquisition of (beverage maker) Flavorstation was one I’d like to have over.

Q. This is great. One other thing to ask you is thinking about small-cap CEOs and feeling lonely, that feeling of doubt. We talked about authenticity. Are there any guiding principles small-cap CEOs should keep in mind as they’re plugging away?

A: It’s important to have an internal board of directors. I’ve got a (Young Presidents Organization) forum that I meet with once a month that are a group of CEOs of similar age but different businesses that face many of the same challenges that I have personally and professionally. And I think having that kind of sounding board really helps you become a good leader. And it has helped me through the years. There are a lot of good organizations out there like YPO and (Young Entrepreneurs Organization) and others that I would encourage people to be a part of. Helping each other is important.

Q. They can say, “You look tired.” Or, “you seem excited. The path you’re on seems like the right one.” That sort of thing?

A. Everybody has the same challenges of growing a family and growing a business at the same time. There are a lot of challenges.

Q. So you’re the executive chairman now of Primo. So how did you know it was time to step back?

A. I was fortunate enough to have found Matt Sheehan and I felt like I had given Primo what I had to give to it as CEO and it felt like it was time to bring in someone to really take it through the next evolution. And Matt was the guy. And that doesn’t mean, by any means, that I’m not going to be an active board chairman. It doesn’t mean that I’m going off into the sunset. I’m sure there’s going to be a next chapter. I plan to finish strong. I’m just not sure yet what God has planned for me.

Q. So what are you up to these days? I hear you’re traveling a lot, you’re executive chair, you’re at the company occasionally. What’s next?

A: I haven’t found what’s next. And that’s one of the things I’ve asked a lot of people who have successfully finished well about. That’s what I’ve been looking at. I’ve been talking to older people who have finished well. I’m trying to take those learnings and look at it and one of the things people always tell me is, “Don’t rush it. Don’t force it. Most of the time it will happen and you need to try not to be too quick to force something to happen.” So, I’ve got plenty to do to keep Primo going on its growth pattern. I own a minor league baseball team and I’m an investor in some small businesses. Hopefully I’ll find that next big thing before long.

Q: I hadn’t heard about the minor league baseball team. Which minor league baseball team do you own?

A: I own the Winston-Salem Dash. We’re a Chicago White Sox affiliate.

Q. Wow. So, my older brother played pro baseball for about 10 years. He was a utility player, but he played for a minor league team called the Carolina Mudcats.

A. We play the Mudcats. I know them well.

Q. That was my favorite minor league team that he played for. I loved going to those games. Is there anything else I haven’t asked you? Is there anything more you would say about being a CEO, running a company, about leadership or how to be successful?

A: Amanda, I think you covered it pretty well. You asked a lot of great questions.